China Boycotts Nike - What Now?

[Music] welcome back guys to another roundtable my name is adam beside me victor hi everyone hello and kenny and welcome to the round table so today we're going to talk about china boycotting nike alright so a bit of a minefield if you're going to go into this topic but you know we're going to discuss a little bit about that so recently we've had a lot of news about um you know sanctions and sings young and all that stuff so we've had the chinese people on online you see them like kind of like burning nike sneakers and all that and saying they're gonna boycott lucky so just a quick background for people who don't already know what's happening why is china boycotting nike yeah so because the west is sanctioning uh china recently right because they passed the bill i think to sanction them and of course there's this group of youngsters online in china uh the communist youth league of china they actually uh said that the haitian ham because they went to dick up the past a statement that h m make right so they say hd actually make a statement that they're not going to use the xinjiang cotton right because uh the sensual was because of the xinjiang right and the all these youth right online youth they actually said that uh h m say that they say that hm is spreading rumors to boycott xinjiang cotton while they also make money in china so they say that this is wishful thinking right so they started the boycott and eventually they also find people who other brands who are also in this list that also are not using xinjiang cotton so nike came in the picture so with adidas zara and all other brands and of course within an hour there's this blacklist uh uh lease right that is floating around waypoint that caused a lot of people to boycott them and of course after that we see that hm actually being wiped out from the internet you know all the internet your ali alibaba your taobao jd being total or gone okay on the map you also cannot fight anymore yeah so they just disappeared from the face of china basically so i think and we don't see that on nike right at the moment yeah but we're gonna focus the discussion on nike because i think it's uh the number one sports brand i think is a bit of interest in that but h m was the one that basically brought the brunt of it yeah and nike will happen to be on the list as well right so i mean again we don't want to wait in any political debate so this is not a political channel we don't discuss who's right or wrong here we're just going to focus as investors whether there's a you know there's an opportunity in nike uh despite the boycott and whether what this means for the company moving forward as well so that's a quick overview of the boycott yeah right and of course yeah i just want to take the time to like spain so basically h m is under this better cotton initiative it's a nonprofit group that promotes sustainable cotton production so they also do not condone like forced labor like the uyghurs in china where they are forced to work in the cotton fields according to most reports right but then of course h m was the one that they targeted then under the better cotton initiative there's also adidas and nike as well as burberry and many other brands that are under it although they don't uh outwardly say that they uh they do not condone yeah they're not like a statement yeah yeah something like that so then they just stop sourcing from that area so i think the chinese weren't very happy because you know you sell goods to the chinese people without using the chinese cotton and xinjiang is a very big cotton producer they produce about 20 percent of the world's cotton and then at the same time um so what happened is the chinese government actually came out to say that they denied all these allegations and they even showed a video on their state media news group stating that most of uh most of it is done autonomously with uh all the machines right picking up cottons from the field and then the uyghurs voluntarily work on the field because of the high pay they can get over there so i'm i mean which one is true or false we cannot yeah we don't want to come politics forward there's a lot of some say propaganda some say it's some genocide is happening on that so again we don't want to wait into that debate yeah we can go somewhere else uh we're gonna look at investing right now yeah okay yeah so uh let's go focus on nike because i think it's the number one sports brand has been around for so many many years at the top of its industry and i mean i think nike is quite a headline brand right to be boycotted so i think the question will be is this boycott really going to affect uh nike right in china so before we go into that let's just go uh look at the statistics right so uh to nike greater china area that's the segment that they're in is actually the third largest market eighty eighteen percent of their revenue in 2020 and then it is also the fastest growing market uh for them for the pa last 10 years it has grown at a compounded annual growth rate of uh 14 year-over-year so it's it's a very important market to them yeah actually on terms of uh earning before interest and tax um greater challenger accounts about close to 49 of ebit in 2019 alone all right so in doing india accounted more than 50 percent because china is the first country to recover from kobe 19 and the rest of the region were actually not doing pretty well so china has done pretty well for nike so i think it's a big substantial part for nike for their china contribution so it's quite substantial so what you're saying is even though the revenue is about 18 18 percent yeah but when it comes down to ebit earnings before interest and checks yeah which is your operating profit your operating profit that's about almost 50 half a half so actually china is accounting for quite a bit for nike according a lot quite a bit sorry it's my english quite a lot but yeah okay so so then the question will be so if it's such a big pie of nike china is such an important market will this boycott really affect china is this going to have is this going to carry on how long it's going to go i think for boycott is is it's not new to nike you know i've been they have always been boycott you know throughout their whole years then when they're running nike right there's this april 1992 as a report came out about uh those uh the case the problem about uh sweatshop right which means that they actually same thing forced label child labor low wage long hours right so their share prices number 3.5 percent at that point of time right the same thing happened again in 97 it dropped 35.4 percent right so this whole thing dragged all the way to 2010. so it's the 20th thing they solved the issue already right then of course recently in recent years in september 2018 they got the boycott uh which is over the colin kaepernick case right where all the youngsters actually burnt uh they are nike socks burn their nike shoe but we can be sure that uh those shoes that they burn are not air jordan you know it's all the normal nike shoes i i'm gonna check it's all the normal it's not jordan definitely right so so that case also dropped twenty point nine percent but if you look at the overall trend the whole history of nike you're still always on the uptrend okay the business is still doing good right and also um there's this research done by a northwestern university professor he actually did a research on 140 boycotts on different brands right from 1990 to 2005 and his wish has shown that all this boycott right uh don't last right there's not much impact to the business because eventually all these bus ride will die out right so that's the case i i think that the clock won't last long so according to the south china morning post right the article they say hmm was removed from all the platform while uh adidas and nike was trading as per normal yeah yeah so they they weren't that much affected and at the same time when they released yeah new shoes on t-mall right it's sold out within like a very short period robbie's jordan yeah air jordan yeah for the women so i think there's a demand and of course there's this uh hoarding mentality you know it's almost like you know uh when you doing kovit you know you can't get toilet paper yeah i think the chinese are kind of afraid that they can't bring jonathan to toilet paper not really i don't think this boycott you know like i mean as much as if they really want to boycott nike and but nikes decided to half the price of air jordan i tell you people still rush and buy one yeah right okay so at the same time i think the chinese government is very smart because nike has a very deep root in china because they invested a lot they have contracts with the national chinese football team as well as the basketball association athletics team and then in 2015 they actually signed a 12-year contract to sponsor them about 153 million dollars worth of sports gears and equipment and of course you do not want to just push nike aside right and for all these teams if they want to pull out of their contracts they have to get the government's approval for them to pull out of it and at the same time all these entertainers they say they're going to pull out their contracts h m nike and i does the reason why is because their market is in china and if they were to go against the government not obeying them that could clearly hinder their prospects in china moving forward right you know you see what happened with n group uh you know i mean that could be an example but yeah so that's why so i think so long the nike doesn't you know step on the chinese government show uh boycotting is really not an issue i mean just at the moment where maybe people will i just like to use social media to get light because there's a natural trend towards the news there's a popularity over there you know you kind of take the advantage some people just use that kind of tool right so so long they don't use or step on the garment store i think is fine also at the same time you cannot do without nike and adidas because they spend a lot of time doing r and d they work with the best at the least they got the best data out there and they get to experiment with different materials to enhance their performance so then uh so i read some articles online that if not not working with knocking at least could hurt them more than anything else because it could affect their athlete's performance well yeah the shoes and clothes okay so it sounds like as uh so the boycotts don't last yeah based on history yeah sure there's a lot of uh a lot of companies have there's a lot of research about 140 companies 140 companies and the boycotts don't last and it just seems that this is a something that's going to happen for now all right yeah so if we assume that this boycott is going to run out and it's not going to last um so let's have a look at nike's valuation then right okay so uh since the peak the most recent peak i think it was about 145 144 yeah went all the way down to 128 right now it's about 130 so i think uh it's about 10 drop uh since you know all this uh huh came up thereabouts all right so a ten percent drop is not a lot but quite something a bit something to look at right yeah something to explore so what do you think is china i mean not china it's nike uh what what's the valuation right now do you think it looks uh attractive you know with this recent 10 8 drop what do you think so uh right now it's trading at about 62 times earnings and of course uh the reason why it's so high is because i know the earnings dropped from 255 to 161 due to the covet right they've been affected by kovitz so based on 2019 earnings per share it's actually trading at 52 times and then based on the median historical medium 10-year median is 26.73 times so in a way it's still quite expensive and also you you get to see how the market is thinking that means the market thinks that this is not a big deal it's just a short-term thing so that's why it dropped by a bit and then recovered before i mean before you had any chance to look to enter into the song right yeah so yeah so i mean even with the draw it looks it looks expensive i mean you're telling me it's over 50 times earnings when the long term average is about 25 26 yeah it's double what the historical average is so nike is actually very expensive right now yeah that's right so i mean then i think it's quite clear that you wouldn't so the question would be like why why are people buying nike despite all this why is it is it expensive they just do it just do it just do it yeah just buy it so i think there's a lot of optimism despite the boycott and all that so i think it's quite clear if you would would you buy nike right now not for now all right all right so i mean uh i think if you take a look at the charts we're going to show up i think yeah i think nike looks very expensive compared to historical averages despite this recent tiny i mean a little bit of a drop in the boycott and all that so i think if you're looking at nike and you're interested in nike uh probably you want to wait for a better price a better valuation all right so just a quick uh update on nike and his boycott situation so i hoped you enjoyed the round table uh feel free to like this video if you learned something subscribe to our channel and once again thank you so much my name is adam this is victor thank you roseman thank you and kenny you are the fifth person joining us thank you so much for watching and we'll see you around

Channel: The Fifth Person

Views: 4,617

Rating: 4.9076924 out of 5

Keywords: The Fifth Person, Xinjiang Boycott, China Botcott Nike, China Boycott H&M, Chinese Boycott, Nike Share Price

Id: Al2ZsDdu7P0

Length: 13min 18sec (798 seconds)

Published: Wed Apr 07 2021